In system. In the greatest number of countries, there

In
my first part i will talk about the concept of deposit insurance system.

Assuring the
deposits made by people in banks is very important to guarantee assurance and
trust in the banking system. In the greatest number of countries, there are
measure to guarantee the money deposited by the people. The principal
instrument of supplying protection to depositors is deposit insurance. This
principal instrument provide insurance protection to the deposit of peoples by
taking a premium.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

when the financial
institution bankrupt, the depositors will get back their funds. Deposit
insurance will be assured up to a certain amount . For obtaining the insurance
to deposit guarantee, the depositors should give money for premium.

Even though the
financial and economic system suffered considerably from the stock market fall
of 1929, bank bankruptcy did not intensify until 1930, then always raised over
the next few years, essentially because the FED declined the money supply in an
try to support the gold standard, and due to the US government established new
taxes, to balance the budget, which decreased the amount of money owned by the
public. The problem of unemployment increased quickly and people began
withdrawing their money creating a large number of bank bankruptcy.

Therefore In 1932,
the President of United State Roosevelt , established a New Deal that modified
the government importantly. The consequence was the Banking Act of 1933, which
establish a original institution, the Federal Deposit Insurance Corporation ,
to cover depositor’s money so that bank rushes of all kinds would finish, and
it was significantly advantageous.

The Federal
Deposit Insurance Corporation was the first deposit insurance provided in the
US throughout the Great Depression period with the goal and reason of limiting
the widespread bank run that contributed to the important depression.During
this period many banks failed and depositor did not get back their money. The
first formal system of national bank deposit insurance in United State was set
up in 1933 to increase and return protection and trust in the US Bank and to protect
small depositors.A large number of country even those where banking system
trouble has bore the great depression did not follow the United State deposit
insurance mechanism.And it was not until the post war period that this
mechanism started to expand all over the world.The eighties observed a
expansion in the development of

deposit insurance
with an important number of industrialized countries and a growing number of
developing countries using deposit insurance.In 1994 the deposit insurance
protection is a standard in order to create an unique banking market of the
european union.The common deposit insurance has become more and more familiar
and an increasing quantity of depositor are at this time insured from the risk
of bankruptcy.

The deposit protection
mechanism has been commonly accepted in the overall countries. A large number
of study observes that, countries putting in place an unique rate for deposit
insurance have been decreasing, even though that countries are some problem in
the implementation of risk-adjusted rate of the deposit insurance
mechanism.There is however many countries which have chose to do so. According
to the study By the end of 2000, 40.8 percent of countries which have
implemented a explicit deposit protection mechanism have approved the mechanism
of risk-adjusted rates.

After the
establishment of federal deposit insurance corporation a large number of
countries have establish deposit insurance institutions in particular after
1960s. The International Association of Deposit Insurance shows , 113 countries
own insurance of deposit in 2015.In, 2009, the president of United state signed
the Helping Families Save Their Homes Act.This act goes up the amount insured
from $100,000 to $250,000 per customer.The federal deposit insurance
corporation covers each customer at each financial institution for up to
$250,000.

In my second part
i will going to ask myself why a country may implement a deposit insurance
system?

A country may
establish a deposit insurance system for several reasons.The deposit insurance
system give a guarantee for small depositors.This mechanism improve trust and
solidity in the financial system and incite saving.The deposit protection
promote economic development and encourage competition between modest bank and important
bank.

Deposit insurance
decrease bank run, banks can use two possible system:the bank suspense the
withdrawal and can create government deposit insurance. The implementation of a
system of deposit protection is one of the solution to prevent the risk of bank
contagion.The establishment of this insurance mechanism could be the only way
to avoid the rushing of deposit.Bank rushes of all kind can create a bank run.
A bank run takes place when an important number of depositors of a bank
withdraw their money at the same time due to problem concerning the bank’s
solvency. As more depositor withdraw their money, the probability of bankrupt
goes up.

In united state
the federal deposit insurance corporation does try to defend important
depositors because a large number of depositor are owned by businesses and
their failure may provoke their bankrupt, with important consequences for the
real economy.Their bankrupt may create rushing of deposit by large depositors
on other financial institutions, which may accelerate their bankruptcy.

In my third part i
will going to ask myself how deposit insurance system works.

deposit insurance
protection is usually provided by a government agency and give protection all
peoples that their deposits will be paid back(up to a fixed amount). In France
this protection is up to 100000 euros.In model of Diamond and Dybvig deposit insurance
would make type 2 depositor wait until periode 2 as it more advantageous for
them.Diamond and Dybvig explained the concept of liquidity insurance.We
determine 3 period and 2 types of agent. Deposit insurance institution protect
all deposit accounts like saving and checking accounts, money market deposit
accounts and certificates of deposit.On the other side this instrument does not
protect product and services that a financial institution can propose like
bonds stocks securities.If the banking system was in a crisis of liquidity or a
failure, The Deposit Insurance agency will supply financial backing or direct
deposit to reimburse fraction or overall of deposits.

In my final part i
will going to ask myself how deposit insurance is funded?

In large number of
countries the insurance mechanism has a fixed premium.The participation
corresponding to the amount of deposit and not depend of the risk taken by the
financial institution.The contribution to the insurance company is independente
on the failure risk of the bank.

In united state
deposit insurance mechanism is funded of the Deposit Insurance Fund, which is
preserved through the payment of premiums by each financial institution like
bank.It is funded on the size of its deposits makes by depositor and the level
of risk the bank faces. The deposit insurance fund is invested in the market
also , but it takes no financial aid from tax dollars, its mean that taxpayers
do not endure the weight and consequence of deposit insurance.For example in
United State there is a fund that is dedicated to protecting the depositor by
the federal deposit insurance corporation. The Fund is establish to reimburse
the deposit lost as a result of bankruptcy of a bank. The protection fund is
financed money by payments of insurance executed by the banks.

Deposit insurance
institution covers all deposit accounts like saving and checking accounts,
money market deposit accounts and certificates of deposit.On the other side
this instrument does not protect product and services that a financial
institution can propose like bonds stocks securities.If the banking system was
in a crisis of liquidity or a failure, The Deposit Insurance agency will supply
financial backing or direct deposit to reimburse fraction or overall of
deposits.